Mixed Messages: How Treasurers Should Unpick Their Banks’ Approaches to ISO 20022

Shifting timelines have also contributed to confusion for corporate treasury groups. Migration plans for both SWIFT and local payment systems have been repeatedly revised, making it challenging for banks to communicate deadlines with any certainty. The moving schedules have diminished any sense of urgency among corporates to understand what is happening. However, now that many migrations are under way, treasury professionals need to sit up and take notice.

Corporate Impact and Challenges

For many treasury teams, the most significant source of confusion is that they are receiving mixed messages from their financial institutions about what ISO 20022 means for their banking relationships. At a high level, the adoption of ISO 20022 will eventually lead banks to require their corporate customers to submit payment instructions in ISO 20022 format rather than legacy standards.

Neither SWIFT nor local settlement systems are going to mandate that corporates switch to ISO 20022, but banks that are heavily investing in new ISO 20022–compliant systems are widely expected to demand, over time, that corporate customers align with their processes. In fact, as ISO 20022 becomes the prevailing standard, banks might start charging extra for non–ISO 20022 submissions, with the goal of recouping some of their investment. The challenge for corporates is that banks are working at their own pace on the ISO 20022 migration, and there is no single deadline by which they will require corporates to start using ISO 20022.

Additionally, because of the ISO 20022–driven enhanced data requirements introduced by payment system providers, banks will need their corporate customers to submit and accept additional information within payment instructions. For example, last May, the Bank of England began requiring that any property-related CHAPS transactions include “purpose codes.” The challenge for corporate treasury is that a company’s banks may be taking very different approaches to how they will accept that additional information.

ISO 20022 is not one single message format; it’s a framework that can be applied in multiple ways. Meanwhile, every bank has its own IT infrastructure and processes for settling payments, and even within an institution, these systems and processes likely vary by payment type, such as domestic versus cross-border payments.

As a result, banks’ requirements for accepting the additional data required by ISO 20022 differ significantly. The ISO framework allows for various data points needed for a payment instruction—such as the international bank account number (IBAN), Bank Identifier Code (BIC), and service-level tag—to be attached to the payment in a variety of places. However, an individual bank’s systems might need to receive this data in a specific field in order to ingest it properly. One bank might use the data in a given data field for its anti-money laundering (AML) checks, while another uses that same field in a different way because of how its systems consume data. Any missteps in data placement can result in payments being rejected.

Where Corporate Treasury Should Start

For companies that use multiple banks, the various bank timelines and differing technical requirements create an implementation nightmare, making it difficult to determine when and how they should update their own systems.

The first step they should take to ensure they’re on top of the ISO 20022 transition is to be proactive. Rather than handing all power to their banks, corporate treasury teams should take the lead in understanding what changes will be required by their banks’ payment systems. Then they should develop an implementation plan. Companies that get ahead of the changes now are less likely to face bank charges for using legacy data formats after the bank’s deadline for transition, and they will benefit from having access to enriched data sooner.

The second step is to prepare for a multiyear, multi-phase project as settlement providers move forward with their migrations and expand enhanced-data requirements. SWIFT, for example, is far from finished with the ISO 20022 transition; it will be releasing a new ISO 20022 cash reporting standard—the data-rich CAMT format for bank statements—this month.

Finally, corporate treasury teams need to factor in their banks’ varying approaches to the enhanced-data requirements as they plan their technology upgrades to accommodate ISO 20022 standards. They need to understand the precise technical requirements around how each bank will accept the additional data, or else they should find a partner to manage the data conversion between their back-office systems and their banking portals. Understanding and adequately preparing for this aspect of the ISO 20022 transition can make the difference between a smooth migration and a painful, protracted one.

Taking the Lead on ISO 20022 Implementation

SWIFT’s November 22 deadline for the end of the coexistence period may be targeted at banks, but it has a second-hand impact on corporate customers. Banks have invested heavily in upgrading their payment systems to be ISO 20022–ready, and over time, they will expect their corporate customers to align.

Rather than put themselves at the mercy of individual bank timelines, corporate treasury groups need to be proactive and prepare to update their internal systems for ISO 20022. Recognizing that different banks are taking different approaches will be key to implementation success.